Examination of Witnesses (Questions 420
WEDNESDAY 15 NOVEMBER 2000
420. When you say that too much reliability
is being put on punctuality and too many incentives, you are almost
sayingare you really sayingthat you cannot run your
trains on time?
(Mr Brown) If I can comment on that. I think our point
is that the industry has a number of objectives which we are quite
rightly looking to achieve. Two key objectives, apart from the
absolutely paramount objective of improving the safety performance
of the industry, are to achieve substantial growth in passenger
numbers. The Government is quite rightly looking for us to grow
passengers numbers by at least 50 per cent as well as an improvement
in the service delivered to passengers. I think our concern about,
as Mr Muir has described it, super-charging the performance incentives,
is that it may just imbalance the focus within the industry when
we also need to grow strongly as well.
421. Why should it unbalance your focus if you
are asked to perform to certain levels, which presumably are to
do with safety, with reliability, with time keeping? Why should
those be subjects that you do not wish to see overly emphasised?
(Mr Brown) If I may just go into a point of detail,
Madam Chairman. The incentives that are in the Regulator's review,
of course, apply to Railtrack, not the train companies yet. The
incentives for the train companies will come about, either as
a result of franchise extensions or replacement franchises.
422. The thing that Mr Muir mentioned were those
that were directly the responsibility of the train operating companies.
(Mr Brown) I think you were asking us our views on
the Regulator's review, which, of course, applies to Railtrack
(Mr Brown) and what it is able to deliver for
424. You think there are too many incentives
and they are putting too much pressure on?
(Mr Brown) We thinkand we said this to the
Rail Regulatorthat the doubling of the incentives and penalties
on train performance may risk causing an over focus on Railtrack
on performance at the expense of growth.
425. As a lay person, it is the first time in
my memory that virtually the whole of the railway system has been
closed down. Do you think that Railtrack, as presently structured,
can deliver the investment that the Government wants to see?
(Mr Brown) You are, of course, referring to the effects
of flooding and all the speed restrictions around the network
in the last few weeks.
426. I am referring to the fact that in my living
memory this is the first time the whole of the railway system
has been virtually shut down.
(Mr Brown) Certainly it is the worst case of closure.
It is not the whole system, but widespread parts of it were closed
and, in my 24 years in the industry, so I can only agree with
you on that. I think one has to say that, yes, we do have concerns
about Railtrack's ability to deliver the sort of improvements
that are required.
427. What would those concerns be, Mr Brown,
(Mr Brown) Well, I think we are talking about the
post-Hatfield speed restrictions, and that is of concern to us,
that that level of problem with the rails can have existed and
have come about and we get into a situation where it has to be
solved via a crash programme rather than by pre-planned sustained
regular maintenance over a period of time.
428. Are you satisfied as the Association of
Train Operating Companies that Railtrack has (a) anything like
sufficient control over its sub-contractors, and (b) what is your
reaction to the notion that Railtrack has effectively transferred
its safety responsibility to those sub-contractors?
(Mr Brown) A working group has been set up involving
the train operators, as well as the Strategic Rail Authority and
Railtrack. At the initiation of the Strategic Rail Authority we
have been actively participating looking at the relationships
between Railtrack and its maintenance contractors. I think one
can only say that after both the tragic accident at Hatfield and
the extent of rail flaws discovered since, there has to be a change
in the relationship between Railtrack and its contractors. Not
being an infrastructure person or a civil engineer, I am not particularly
qualified to say what those changes should be.
429. Can I ask two more quick questions? In
evidence to this Committee, Mr Corbett, the Chief Executive of
Railtrack, has consistently insisted that Railtrack does not put
profits before safety. Do you agree with that?
(Mr Brown) Yes, I would agree with that.
430. Can I ask my last question about access
charges, which you have referred to? According to the figures
that we have, the access charges will reduce next year and then
increase in real terms so that over the period 2005-06 they will
be 6.5 per cent higher than the current year. The question I want
to ask is in relation to the next bit in this section. In the
absence of grants, according to the Regulator, these charges will
increase by 34.5 per cent in the first year and at the end of
the period charges will be 62 per cent higher. Does that worry
you? Are you concerned about that? Has the Regulator got this
about right, do you think?
(Mr Brown) That is quite a complex question. The track
access charges that Railtrack levies to train companies is a pass
through to the Strategic Rail Authority. They do not directly
affect the finances of the individual train companies, so the
issue is, is the Strategic Rail Authority, as part of implementation
of the 10 year plan, happy with taking higher level track charges.
Now, given the level of investment that I think everybody is looking
for, going forward, that clearly has to be financed, and given
the level of maintenance and renewals, which needs to be funded
going forward, yes, it is necessary that those charges are incurred,
but I would just stress that those charges are not falling on
431. They may not be falling on your profits,
but they are falling on the taxpayer, I can tell you that, because
the grants referred to are due to increase by no less than 20
per cent over the period, from £826 million to over £1
billion. So, without that increase in public support you would
agree that the figures quoted by the Regulator, 34.5 per cent
in the first year to 62 per cent higher without those grants are
in fact true?
(Mr Brown) I could not confirm to you those precise
figures, but clearly there has been a substantial increase.
432. My last question on this, and I hope you
might have a view on it, I have talked about the increase revenue
support in terms of grants, 20 per cent higher over the period,
would those figures be affected in your view by the grants directly
coming from Government to Railtrack, for example, £4 billion
direct grant improvement for the West Coast Mainline, which presumably
your companies will benefit from?
(Mr Brown) Certain train operators will benefit from
those, and are making major contributions to them. My company
is a particular company which is involved. Yes, clearly the charges
which Railtrack levies to the train operators through to the SRA
are affected by the level of grant and there is the Rail Modernisation
Fund, which is running at £7 million which effectively is
paid direct from SRA for specified investments and improvements,
not channelled through the grant. That is additional funding available
to Railtrack and to the industry, not channelled through grants.
It is an important impact, yes.
433. Tell me, finally, this scenario where investment,
access charges, SRA involvement, the ability of Railtrack to deliver
the programme is predicated to a massive degree, is it not, on
public money, one way or the other? You are nodding your head,
Mr Muir. Do you agree with that?
(Mr Muir) It certainly is predicated on public money.
434. Would you agree when I say "a massive
(Mr Muir) Certainly.
435. We heard evidence from Mr Knapp this afternoon
and in his view it is a big mistake that the operation of the
trains was separated from the track on which they travel, do you
agree with that?
(Mr Brown) I think it is an issue which will need
to be revisited when the various inquiries are concluded. What
we would say at the moment is that what the industry needs more
than anything else is some stability, because there has been a
lot of change and a lot of problems in the industry.
436. What does that mean, Mr Brown, you do not
want to look into it until somebody else has taken some decisions,
or you do want to look at it but you do not want to change anything
until somebody else has taken some decisions?
(Mr Brown) We believe that structural changes in the
industry at the moment, and for some time to come, would not be
helpful given the scale of the task
Chairman: So the answer to Miss McIntosh is
quite plainly, no.
Miss McIntosh: Well, no, because would you not
agree that in the airlines it has already happened? The operation
of air space is operated completely independently by the various
operators, so there is model in other sectors of transport, as
there is, in fact, in the rail industry and other European Union
countries. So we are not unique in this country in having the
track separate from the trains which operate on it.
437. I do not quite think you put it to Mr Brown
in those terms, did you?
(Mr Ludeman) We are going through a process of re-franchising
at the moment in the industry. This is something we have asked
for and we are very happy to be given the opportunity to bid for
longer franchises. Those longer franchises will allow a lot more
investment to come into the industry. A lot of that is public
investment, but there is also private investment in there as well.
In order for us to deliver that investment to the times we are
promising in these new franchise agreements there would have to
be some change to the current structures in the industry. There
may be, as part of that process, some need for more vertical integration.
We, in our bid for South Central Railway, have come up with the
concept of an SPV, which is a joint venture with Railtrack, Bechtel
and others to deliver the infrastructure product. That is not
the model which is currently adopted in other parts of the network.
438. What did you call it?
(Mr Ludeman) Special Purpose Vehicle. It is a generic
term to describe a way of financing investment and the way partners
work together to deliver that new investment. We believe there
does need to be structural change. We do not want massive change
at the moment. The change we have is the vehicle of re-franchising,
and we believe by using that vehicle of re-franchising we can
gradually introduce change. What the passengers want is a safe,
punctual and reliable railway. They do not want, I believe, us
spending our energy and time in finding further ways of restructuring
the industry in a very short space of time. That does not produce
stability and I do not think that it is to the benefit of the
439. Do you believe in times of an economic
down-turn people are less likely or more reluctant to travel by
train and, in fact, such an economic down-turn might interrupt
private sector investment?
(Mr Ludeman) The thing that drives investment is revenue,
and you are quite right that if there is an economic down-turn
the railways suffer pretty quickly. The risk of that happening
to the re-franchising process is passed on to the franchisee,
so it is the private sector that takes that risk. For example,
in the South Central franchise we have taken the revenue risk
for 20 years. If there is a revenue down-turn, it is our problem.